The Nigerian capital market has experienced significant growth in recent years, with the market capitalization rising over 15 times between 2003 and 2008. Equities have dominated the market, accounting for over 75% of the total market capitalization. However, the banking sector consolidation led banking stocks to increase their dominance of the total market. While the government bond market has grown, the corporate bond market remains underdeveloped. Further developing the corporate bond market and introducing new instruments could help diversify issuer base and provide alternative sources of financing to support economic growth.

1. THE NIGERIAN CAPITAL MARKET
Ebenezer Olufowose
Executive Director, Access Bank Plc
6th March, 2008
The Quest for Excellence

2. Presentation Outline
– Market Performance Indices
– Instruments & Issuers
– Key Issues
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3. Market Performance Indices
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4. Market Growth – Market Cap / Index
• Bonds
• Equities
– Secondary market trading in Govt
– market cap was up by more than 15 times
Securities started in Feb 2006.
in less than 5 years, from below N1 trillion
– The Access Bank Govt Bond Index
in 2003 to N12.5 trillion by Feb 2008.
was introduced in Dec 2006. The
– ASI more than tripled from 20,129 points in
Index grew from a base of 1000
2003 to 64,351 points by February 2008.
points in December 2006 to 1,150
– Steep growth between 2005 amd 2008 points as at February 2008
driven largely by banking sector
– Market cap also rose from N90 billion
consolidation. in Dec 2006 to N658 billion in Feb
2008.
MARKET CAPITALISATION/ ALL-SHARE INDEX (2003 TO FEB. 2008) ACCESS BANK NIGERIAN GOVERNMENT BOND INDEX
14,000.0 70,000 700 1200
12,000.0 60,000 600
M arket Capitalisation (N'Billion)
1150
10,000.0 50,000
Market Cap. (N'Billion)
500
All-Share Index
8,000.0 40,000 400
MARKET
Market CAP
Index
1100 CAPITALISATION
All Share Index INDEX
6,000.0 30,000 300
4,000.0 20,000 200
1050
2,000.0 10,000 100
- - - 1000
2003 2004 2005 2006 2007 2008 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Feb-08
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5. Market Growth – Securities Turnover
Annual Market Turnover on the NSE
2,500.00
2,000.00
(N'Billions)
1,500.00
1,000.00
500.00
-
2003 2004 2005 2006 2007
Source: Nigerian Stock Exchange (NSE)
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6. Market Growth – Trading in Fed Govt Bonds
• The introduction of secondary market trading in government securities in Feb 2006,
has led to the development of a yield curve.
SECONDARY MARKET ON FGN BONDS
600,000 5000
4500
500,000
4000
3500
400,000
3000
(N illion)
VALUE
300,000 2500
quot;B
DEALS
2000
200,000
1500
1000
100,000
500
0 0
Feb-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Jan-08
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7. Sovereign Yield Curve
NIGERIAN GOVERNMENT RISK FREE YIELD CURVE AS AT DECEMBER 2007
12.00
11.00
10.00
YIEL D (% )
9.00
8.00
7.00
6.00
5.00
30 DAYS 60 DAYS 90 DAYS 1 YEAR 3 YEARS 5 YEARS 7 YEARS 10 YEARS
TENOR TO MATURITY
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8. Market Capitalisation as a Percentage of GDP
Market Capitalisation as Percentage of GDP
50.00%
40.00%
Percentage of GDP
30.00%
20.00%
10.00%
0.00%
2003 2004 2005 2006 2007
Years
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9. Key Growth Drivers – Banking Sector Consolidation
• Banking sector capitalisation as a percentage of total market capitalisation increased
from 36% in 2002 to 60% in 2006 a direct consequence of the consolidation in the
sector.
MARKET CAPITALISATION PER SECTOR (2006)
MARKET CAPITALISATION PER SECTOR (2002)
Other Sectors
20%
Other Sectors
Banking
26%
36%
Petroleum Mkting
3%
Petroleum Mkting Banking
Food
7% 60%
10%
Breweries
Food
Breweries 7%
9%
22%
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10. Key Growth Drivers – Changes in Domestic Debt Profile
• In 2001, Government debt was essentially in the form of treasury bills and treasury
bonds.
• From 2003, the Government entered the bond market by issuing bonds of 3,5,7 and 10-
year tenors, as part of a planned bond issuance programme.
• By 2007, FGN bonds accounted for 49.41% of total Government domestic debt.
DOMESTIC DEBT BY TYPE (2001-2007)
2,500
2,000
V L E (N illio )
n
1,500 Development Stocks
'B
Treasury Bonds
FGN Bonds
AU
Treasury Bills
1,000
500
0
2001 2002 2003 2004 2005 2006 2007
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11. Key Growth Drivers – High Returns
• The NSE ASI appreciated by 75% between 2006 and Dec 2007, due to increases in
new issues as well as a generally bullish market fueled by substantial new injection
of local and offshore liquidity.
• The returns were enhanced by the appreciation of the Naira – over 8% in 2007.
EXCHANGE RATE/ALL-SHARE INDEX
70000 140
60000 135
50000 130
N/US$ RATE
40000 125
INDEX
All-Share Index
N/US$ RATE
30000 120
20000 115
10000 110
0 105
Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07
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12. Key Growth Drivers – High Returns
In 2006, equity returns on the NSE ranked 3rd amongst emerging markets, and
•
second amongst African markets.
• This was driven by strong demand from retail and institutional investors as well as
foreign portfolio investors.
Select African Markets (2006)
100
90
80
70
Market Retur, in %
60
50
40
30
20
10
0
Egypt Morocco South Africa Zimbabwe Nigeria
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13. Instruments & Issuers
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14. Equity Vs Bonds
• Market remains dominated by equities which accounted for 85% of total market
capitalisation in 2005 and 77% in 2007.
Market Capitalisation (Equities vs. Bonds)
14000
12000
Capitalisation (N'Billion)
10000
8000
Bonds
Equities
6000
4000
2000
0
2003 2004 2005 2006 2007
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15. New Equity Issues By Sectors (2007)
NEW EQUITY ISSUES BY SECTORS IN 2007
Food
1%
Others
2%
Insurance/Financi
al Services
1%
Banks
96%
Source: Securities and Exchange Commission
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16. Domestic Bonds
• Outstanding bonds are dominated by FGN issues. This accounted for 95% of total
outstanding bonds in 2007.
• Corporate bonds are largely non-existent.
OUTSTANDING BONDS AS AT DECEMBER 2007
CORPORATE BONDS
3%
STATE BONDS
1%
.FEDERAL GOVT
BONDS
96%
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17. Key Issues
• The bond market is dominated by FGN bonds. The corporate bond
market which collapsed in the early 1990s is yet to revive.
• Equities remain the dominant instrument for raising long term capital
with banks accounting for 60% of market capitalisation.
• Corporations have continued to rely on the bank market to meet their
short and medium term needs.
• Market is ready for introduction of innovative structured investment
products eg Asset-backed securities, Mortgage-backed securities,
Exchange Traded Funds, etc
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18. Key Issues
• The collapse of the corporate bond market has led to over-dependence on bank
markets with negative consequences:
– Inability to raise financings for a wide range of infrastructure projects that
directly contribute to economic development.
– Exposure of borrowers to short term market volatilities.
– Funding mismatch arising from the funding of long term capital projects with
short-term borrowings.
– Potential for over-valued equity markets as there are limited alternatives
• Key to further development of the market is the diversifying of the issuer
base to cover new instruments and credit risk of different economic
sectors.
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19. Thank You
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